Hon’ble Telegana High Court directed the revenue to consider refund claims under inverted duty structure, retrospectively in terms of Circular dated 06.07.2022

Recently, the Telangana High Court in the case of Micro Systems and Services (Sole Proprietorship) v. Union of India (Writ Petition No.37465 of 2021; dated 05.09.2022) has directed the Revenue to retrospectively consider the refund claims of unutilized ITC on account of inverted duty structure under Section 54(3)(ii) of the Central Goods and Services Tax Act, 2017 ( “CGST Act”) in terms of Circular No. 173/05/2022-GST dated 06.07.2022.

In this case, the refund claim of the petitioner regarding unutilized ITC on account of inverted duty structure was rejected by the Department by relying on the Circular No. 135/05/2020-GST dated 31.03.2020, whereby in para 3.2 it was provided that no refund shall be allowed in case of inverted duty structure when the inputs and outputs are same. Thus, the main thrust for granting refund was that the input supplies and output supplies must be different.

However, various representations were filed seeking clarification on the above said para 3.2 of the Circular dated 31.03.2020 and various High Courts also held the said para 3.2 to be ultra vires the provisions of Section 54 of CGST Act.

Thereafter, the Revenue vide Circular No. 173/05/2022-GST dated 06.07.2022 substituted the abovesaid para 3.2 and clarified as follows:

“4. Therefore, it is clarified that in such cases, refund of accumulated input tax credit on account  of  inverted structure  as  per clause  (ii)  of  sub-section  (3)  of  section  54  of  the  CGST Act, 2017 would be allowed in cases where accumulation of input tax credit is on account of rate of tax on outward supply being less than the rate of tax on inputs (same goods)at the same point of time, as per some concessional notification issued by the Government providing for lower  rate  of  tax  for  some  specified  supplies  subject to fulfilment  of  other  conditions.”

In view of the above circumstances, the Hon’ble Telangana HC held as follows:

  • That the nature of the Circular dated 06.07.2022 is clarificatory and hence, the same shall have retrospective effect i.e. with effect from 31.03.2020 when the Circular dated 31.03.2020 came into effect.
  • The case was remanded back with the direction to the Revenue to reconsider the refund claim of Petitioner on the basis of the Circular dated 31.03.2020 as clarified by the Circular dated 06.07.2022.


It is the settled principle of law that a clarificatory/beneficial law/circular shall have retrospective application. Keeping this principle in mind, the above said judgment of Telangana HC is beneficial for the assesses wherein the Revenue is rejecting refund claims in cases of inverted duty structure on the ground that for the relevant refund period the Circular dated 31.03.2020 was in force.


Read the order of High Court of Telangana atMICROS_1.PDF

Yuvraj is an advocate and has completed his B.A. LL.B(Hons) from RGNUL-Punjab. He is a practicing advocate and has been involved in matters pertaining to GST and other indirect taxes as well as Direct Tax. He is active in Writ Courts and has involvement in a few landmark judgments like Pitambra Books Pvt. Ltd. V. Union of India (W.P.C. No. 627 of 2020), and represented Sales Tax Bar Association (Delhi) to resolve GST issues and glitches.